Functioning of the Diia City Legal Regime during Martial Law

During the war, supporting and stimulating the development of one of the most promising industries, the IT industry, are extremely important for the Ukrainian economy. To this end, the Cabinet of Ministers, through the Resolution of March 29, 2022 No. 382, clarified the functioning of the Diia City legal regime in connection with the imposition of martial law.

Diia City is a special legal regime created for outsourcing companies, R&D companies, product companies, startups, which provides alternative conditions for IT business, with specific features of labor organization, tax regime and other legal instruments. This regime is regulated by the Law of Ukraine “On Stimulating the Development of the Digital Economy in Ukraine” and the Law of Ukraine “On Amendments to the Tax Code of Ukraine and Other Laws of Ukraine on Stimulating the Development of the Digital Economy in Ukraine”.

Resolution of the Cabinet of Ministers of March 29, 2022 No. 382 provides for the following changes:

1) for the period of martial law and until the first day of the calendar month following the month of termination or abolition of martial law, the provisions of paragraphs 2, 4-6 of part 1 of Art. 9 of the Law of Ukraine “On Stimulating the Development of the Digital Economy in Ukraine” shall not apply.

That is, during martial law, companies shall not be deprived of the status of residents of Diia City, even if they do not meet certain criteria: the amount of income, number of employees, or average salary. Moreover, a resident will not be deprived of their status if:

• they violated the deadline for submitting the compliance report and/or independent opinion by more than 20 working days;
• they repeatedly violated the deadline for submitting the compliance report and/or independent opinion;
• a court decision establishing non-compliance of a resident of Diia City with the requirements set forth in Art. 5 of the Law “On Stimulating the Development of the Digital Economy in Ukraine” has entered into force.

These simplified criteria shall apply to both current residents and companies seeking to join Diia City.

2) Residents will not be required to submit a compliance report and an independent audit opinion before January 1 of the calendar year following the year after the year of termination or abolition of martial law.

The tax conditions of Diia City remain unchanged:

– a choice between exit capital tax at a rate of 9% or income tax at a rate of 18%;

– personal income tax of 5%, and in case of the amount of salary exceeding  240 thousand euros per year – 18%. Military fee is 1.5%. Single social contribution is 22% of the minimum salary.

Read more:

Law on the Functioning of Diia City Tax Regime Has Been Adopted